Valero 2015 Annual Report Download - page 57

Table of Contents
Beginning in 2016, our net periodic benefit cost will be determined using the spot-rate approach. Under this approach, our net periodic
benefit cost will be impacted by the spot rates of the corporate bond yield curve used to calculate our liability discount rate. If the yield
curve were to flatten entirely and our liability discount rate remained unchanged, our net periodic benefit cost would increase by
$19 million for pension benefits and $3 million for other postretirement benefits in 2016.
See Note 13 of Notes to Consolidated Financial Statements for a further discussion of our pension and other postretirement benefit
obligations.
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We record tax liabilities based on our assessment of existing tax laws and regulations. A contingent loss related to an indirect tax
(excise/duty, sales/use, gross receipts, and/or value-added tax) claim is recorded if the loss is both probable and estimable. The
recording of our tax liabilities requires significant judgments and estimates. Actual tax liabilities can vary from our estimates for a
variety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount of tax due. In
addition, in determining our income tax provision, we must assess the likelihood that our deferred tax assets, primarily consisting of net
operating loss and tax credit carryforwards, will be recovered through future taxable income. Judgment is required in estimating the
amount of a valuation allowance, if any, that should be recorded against those deferred income tax assets. If our actual results of
operations differ from such estimates or our estimates of future taxable income change, the valuation allowance may need to be revised.
See Notes 11 and 15 of Notes to Consolidated Financial Statements for a further discussion of our tax liabilities.
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A variety of claims have been made against us in various lawsuits. We record a liability related to a loss contingency attributable to
such legal matters if we determine that it is probable that a loss has been incurred and that the loss is reasonably estimable. The
recording of such liabilities requires judgments and estimates, the results of which can vary significantly from actual litigation results
due to differing interpretations of relevant law and differing opinions regarding the degree of potential liability and the assessment of
reasonable damages.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
We are exposed to market risks related to the volatility in the price of crude oil, refined products (primarily gasoline and distillate), grain
(primarily corn), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash
flows, we use commodity derivative instruments, including swaps, futures, and options to manage the volatility of:
• inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels
(determined on a LIFO basis) differ from our previous year-end LIFO inventory levels and
• forecasted feedstock and refined product purchases, refined product sales, natural gas purchases, and corn purchases to lock in
the price of those forecasted transactions at existing market prices that we deem favorable.
We use the futures markets for the available liquidity, which provides greater flexibility in transacting our price risk activities. We use
swaps primarily to manage our price exposure. We also enter into certain commodity derivative instruments for trading purposes to take
advantage of existing market conditions related to future results of operations and cash flows.
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